Many international farmland owners consider inheritance laws when making an investment in Uruguay. As a matter of fact, the succession duties are much lower than in many other countries. It is relatively straightforward to organize the inheritance. It might be good to analyze well the best ownership structure if the desire is to leave the farm to next generations.
The law considers the direct descendants of the deceased, whether legitimate or natural and in their absence his or her parents, as “forceful heirs” and reserves for such class of heirs a portion of the estate.
In the case that the owner of a farm located in Uruguay dies, the correspondent heirs must carry out the inheritance judicial procedure in Uruguay in order to obtain a judicial declaration of heirs.
Inheritance in Uruguay. Regardless of where the person dies, if he/she has real estate in Uruguay, the inheritance must be processed in Uruguay for those assets. You pay property transfer tax (3 % or 4 % of the cadastral value depending on who the heir is), you have to go through the whole judicial process (with the costs that this entails) and it ends with the registration of the inheritance in the Real Estate Registry. This may take 6 months.
You can also make a donation. You can even donate the bare property and reserve the usufruct for life. In this way you avoid the inheritance process in Uruguay. Once deceased, the bare property and usufruct are consolidated and no succession is necessary. The deed of donation pays property transfer tax and income tax.
Donation is an option. On the other hand, another possibility that we recommend and will generate less taxes in a future sell, is a Purchase and Sale Agreement with retain of usufruct. As mentioned above, it is perfectly possible that each child acquires a 25% of the bare ownership and two usufructuaries. In contrast to a donation, in case of a Purchase and Sale Agreement it is necessary a price and of course a payment from buyers to the sellers.
Regarding taxes, the value is established by the parties of the contract therefore you can set the value but it is advisable to establish a market value; such value will be the cost for a future sale therefore the less value now will lead to more income tax in the future.
Regarding taxes, in a future sell the income tax will be calculated by comparing the selling price with the original purchase price but take into account that this situation only applies in case of a Purchase and Sale Agreement of bare ownership with usufruct retaining.
But if you donate the bare ownership, in a future sale the tax base will be the balance between the cadastral value (instead of the value established by the parties in the donation contract) and the selling price. The cadastral value is much lower than the selling price (and market value also), generating it a higher balance and in consequence higher taxes.
It is necessary to make a real transfer of money from your children to you. It is possible to do it through overseas accounts.
For more tailor made advice we recommend contacting a law firm.
